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Stock Market News for August 7, 2012

Benchmarks had a quiet session on Monday in the absence of major domestic headlines and ended with meager gains. Positive sentiment created by nonfarm payroll data released on Friday overflowed into Monday as well. Meanwhile, Spanish Economy Minister Luis de Guindos said that there is no need for any further austerity measures. Also, representatives from the troika of IMF, ECB and European Commission concluded its visit to Greece last Sunday. Hopes of help from the ECB also lingered to add to the gains.

The Dow Jones Industrial Average (DJI) gained 0.2% and ended at 13,117.51. The Standard & Poor 500 (S&P 500) also added 0.2% to finish yesterday’s trading session at 1,394.23. The tech-laden Nasdaq Composite Index increased 0.7% and closed at 2,989.91. The fear-gauge CBOE Volatility Index (VIX) edged up almost 2.0% and settled at 15.95. Consolidated volumes on the New York Stock Exchange, Nasdaq and the American Stock Exchange were roughly 5.33 billion shares, sharply lower than last year's daily average of 7.84 billion. Advancers outran the decliners on the NYSE; as for 61% stocks that gained, 35% stocks ended lower.

Interestingly enough, the Dow rose on Monday for the first time since May 21. For nine consecutive Mondays, the Dow had settled in negative territory, its longest losing streak since 1973. 19 of the 30 Dow components ended in the green. Prominent gainers included Alcoa Inc. (NYSE:AA), Bank of America Corp (NYSE:BAC), Cisco Systems, Inc. (NASDAQ:CSCO), Hewlett-Packard Company (NYSE:HPQ), E I Du Pont De Nemours And Co (NYSE:DD) and Caterpillar Inc. (NYSE:CAT) and they jumped 1.6%, 2.8%, 2.1%, 2.4%, 1.4% and 1.6%, respectively.

Gains were meager yesterday; but were sufficient to ensure that benchmarks closed the trading session on a three-month high. This was primarily due to the strong gains made on Friday. While Usain Bolt treated us to yet another lightning fast run, benchmarks also had a robust upward rally on Friday. The Dow gained the lowest, by 1.7%. Better-than-expected nonfarm payroll data boosted sentiment and also reversed the markets’ four-day losing streak on the closing day of last week.

On Monday, the positive sentiment from jobs data continued to boost indices. The day lacked any major domestic headlines, Friday’s addition of 163,000 nonfarm payroll employment in July was a significant jump from the addition of 64, 000 jobs in June (revised downwards from the original level of 80, 000). The figure was also clearly ahead of consensus estimates that projected the addition of 99, 000 jobs.

The Fed had suggested that jobs data was an important criterion for it to decide whether fresh economic measures were needed. But robust jobs numbers have not shut the doors on a possible third round of quantitative easing (QE3). The general sentiment is that the rise in the unemployment rate to 8.3% from 8.2% has kept the door open for that possibility.

Thus, while those hopes spilled over to Friday, investors were also hoping that the European Central Bank (ECB) would make a move to buyback Spanish and Italian bonds. Reportedly, German Chancellor Angela Merkel is also in favor of the plan and has said that the German government is “not worried” about the move.

Separately, representatives of ECB, European Commission and International Monetary Fund, collectively called the troika, concluded their Greece visit and have met Greece’s Finance Minister Yannis Stournaras. Reports suggested that the troika and Greece agreed that they need to strengthen ‘policy efforts’. However, the troika noted that the nation has been able to progress a great deal following budgetary cuts.

Meanwhile, the Spanish economy minister ruled out the need of any more austerity measures. However, he said the nation would now seek aid from the European rescue fund. The minister also urged European members to place their trust in Spain and said the nation has provided “more than enough signs that it deserves that confidence".

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